Global accounting standards

Closing the GAAP

America’s commitment to international standards is in doubt

LIKE railway tracks that appear to converge but never actually intersect, the project to get the world’s big economies to use the same accounting standards cannot quite close a vital gap. America’s public companies currently release financial statements based on the country’s own “generally accepted accounting principles” (GAAP). On July 13th the staff of the Securities and Exchange Commission (SEC) released a long-awaited report on whether America should adopt international financial reporting standards (IFRS), which are accepted by over a hundred countries. The SEC staff declined to recommend IFRS, in a paper that was more negative than observers had expected.

American adoption of IFRS seemed likely once. The big accounting firms, many multinational companies, the SEC’s own bosses and the G20 club of big economies all blessed the idea of global standards. A parallel project of “convergence”, whereby America’s accounting-standards body and the International Accounting Standards Board (IASB) issued norms together, was meant to narrow the gap, making it simpler and cheaper for America to move across.

But the convergence process—in areas like leasing, insurance and losses on financial instruments—dragged on longer than expected. Bob Herz and Sir David Tweedie, former heads of America’s Financial Accounting Standards Board and the IASB respectively, left their jobs in 2010 and 2011, further dissipating momentum. The SEC itself is distracted by the task of implementing the Dodd-Frank financial-reform law. All agree that no further decisions will occur before America’s presidential election.

Boosters continue to talk up IFRS. The head of the IASB, Hans Hoogervorst, called the momentum behind them “irreversible” in a statement issued after the gloomy SEC report. He points out that Japan is the only country whose future move to IFRS may be affected if America stays away. Russia and Canada are recent adopters; China may join them. But a global standard without the world’s biggest economy looks hollow. Four Americans sit on the IASB’s 16-person board in London. Should they get the boot if America rejects the international standards? “I don’t want to think about that right now. We still count on their commitment,” says Mr Hoogervorst.